Economics - Study Mode

[#1221] Discriminating monopoly is possible if two markets have
Correct Answer

(C) Different elasticity of demand

Explanation

Solution: Discriminating monopoly is possible if two markets have different elasticity of demand. Price discrimination is possible only when the buyers from different sub-markets are willing to purchase the same product at different prices. If the elasticity of demand is the same, then the effect of the price change on the buyer will be identical too.

[#1222] Consumer's surplus left with the consumer under price discrimination is
Correct Answer

(C) Zero

Explanation

Solution: Consumer's surplus left with the consumer under price discrimination is Zero.

[#1223] In short run, a firm in monopolistic competition
Correct Answer

(D) May earn normal profit, super normal profit or incur losses

Explanation

Solution: In short run, a firm in monopolistic competition may earn normal profit, super normal profit or incur losses. In the short run, a monopolistically competitive firm maximizes profit or minimizes losses by producing that quantity that corresponds to when marginal revenue = marginal cost. If average total cost is below the market price, then the firm will earn an economic profit.

[#1224] In long-run, all firms in monopolistic competition
Correct Answer

(B) Earn normal profits

Explanation

Solution: In long-run, all firms in monopolistic competition earn normal profits. In the long‐run, the competition brought about by the entry of new firms will cause each firm in a monopolistically competitive market to earn normal profits, just like a perfectly competitive firm.

[#1225] In a perfectly competitive market
Correct Answer

(B) Firm is the price taker and industry the price giver

Explanation

Solution: In a perfectly competitive market firm is the price taker and industry the price giver. A perfectly competitive firm would be characterized as a "price taker" due to its inability to influence market price. In a perfectly competitive market, the price of the products are fixed since each firm is producing just enough to stay in business.